Social Security and privatization

The key to entitlement reform is to privatize Social Security; the fear of the American public and President Barack Obama is that the collapse of the stock market will impact their Social Security check. What if the Federal Reserve puts a floor under the stock market?

The stock market, far more than real estate, has been a better financial bet for more than 100 years.

Suppose that Social Security recipients can trade or sell up to 10 percent of their holdings per year and never lose more than 10 percent per year of that stock? If your stock drops from a 24-month high of $100 per share to $50 per share and you want to withdraw money, the Fed agrees to buy the stock for $90 per share. There is no need to rush to sell when the stock market tanks, preventing stampedes.

The Fed sells stock whenever it is profitable; they always buy low and sell high. The Fed will use the profit to provide free financial advice to Social Security recipients and manage their portfolio free of charge, unlike 401k funds.

The average middle-class couple who paid into Social Security starting in 1968 would retire in 2013 as millionaires. What they don’t spend, after taxes, can be inherited by their children offsetting the entitlements of their parents. Parents can live primarily on their 401k investments, dividends, and interest and spend an additional $75,000 on their kids or themselves every year.